Beijing Takes a Big Step to Open Telecoms/Internet and Media Markets to Foreign Investment

On 15 August 2019, several three-year action plans on opening and reforming key services sectors[1] (“Opening Up Plans”) were published by ten local Beijing authorities, including Beijing local branches of the Ministry of Commerce (MOFCOM) and the National Development and Reform Commission (NDRC). The new Opening Up Plans are backed by the State Council’s 22 February 2019 issuance of the Approval regarding Comprehensively Implementing the Trial Working Plans for Opening Up Beijing Service Businesses.[2]

The Opening Up Plans set out breakthrough measures to allow and attract greater foreign investment across a multitude of sectors with long-standing restrictions, including technology, Internet, finance, education, culture/travel, healthcare, elderly care and professional and commercial business services. Among these measures, the major changes relating to the telecoms/Internet and media sectors, to be implemented by local authorities by the end of 2019, include the following:

Relaxing foreign investment shareholding restrictions in certain sub-categories of value-added telecommunications services (VATS), including:

• Allowing up to 50% foreign investment in Internet data center (IDC) services, Internet resource collaborative (IRC) services (a.k.a. “cloud services”) and domestic Internet protocol virtual private network (VPN) services. IDC and IRC services have thus far only been open to certain investors from Hong Kong or Macau,[3] and VPN only to those investors and to any foreigners investing in the Shanghai Free Trade Zone (but for all the aforementioned, subject to a 50% shareholding limitation).  To date, non-CEPA international cloud operators have enjoyed only very limited market access, through contractual arrangements with qualified local partners rather than holding any actual equity in a formal joint venture company.
• Eliminating foreign shareholding limitations in the operation of app stores (a type of information service) and Internet access services (limited to the provision of Internet access services only and excluding Internet content services). Under the existing regime, except for the above-mentioned investors from Hong Kong or Macau, as well as foreign investors who invest in the Shanghai Foreign Trade Zone or those governed by other localized policies, operating app stores in China is restricted to 50% foreign investment and foreign investment in Internet access services is prohibited.
• Promoting foreign investment in storage and forwarding services (e.g., email services, voicemail services), domestic multi-party communications services (e.g., multi-party visual telephone services, TV conference services)[4] and Internet access services. The Opening Up Plans also specify that PRC authorities will help investors navigate the policies issued by the Ministry of Industry and Information Technology (MIIT) that are relevant to these sectors.

Eliminating foreign shareholding restrictions for the following culture and entertainment business activities, within designated areas of Beijing:

• Operation of entertainment establishments (e.g., for singing, dancing, onsite games).
• Operation of performance establishments (e.g., concert venues, live houses, music halls).
• Operation of performance brokerage institutions[5] (e.g., services that connect performers and events/venues).

Relaxing market entry regulations for Internet content services, including online gaming, online video/streaming services and books:

• The Opening Up Plans specify that any foreign-invested enterprise that meets certain regulatory requirements concerning content censorship and data security will be allowed to provide online gaming download and streaming services, which have never been open to foreign investment.
• The production of audio-visual products will now also be open to Sino-foreign cooperation in designated industry zones in Beijing, with the qualifications that operation of such projects shall be led by the domestic party and that the contents of audio-visual products must be determined by the domestic party. More detailed requirements on the forms of such cooperation have yet to be specified.

The Opening Up Plans (starting from Beijing as a trial) represent a tremendous step, even far beyond China’s WTO commitments, in the direction that China has been progressing all year:[6] placing foreign investors on par with domestic businesses, nearly across the board. As a result, the whole landscape of the Chinese telecoms/Internet and media markets will very likely undergo a more significant transformation than ever.

[1] The Opening Up Plans are constituted of: (1) the Three Year Action Plans on Opening and Reforming the Technology Sector (《科技领域开放改革三年行动计划》); (2) the Three Year Action Plans on Opening and Reforming the Internet Information Sector (《互联网领域开放改革三年行动计划》); (3) the Three Year Action Plans on Opening and Reforming the Finance Sector (《 金融领域开放改革三年行动计划》); (4) the Three Year Action Plans on Opening and Reforming the Education Sector (《教育领域开放改革三年行动计划》); (5) the Three Year Action Plans on Opening and Reforming the Culture and Travel Sector (文化旅游领域开放改革三年行动计划)); (6) the Three Year Action Plans on Opening and Reforming the Healthcare and Elderly Care Sector (《医疗养老领域开放改革三年行动计划》); (7) the Three Year Action Plans on Opening and Reforming the Professional Service Sector (《专业服务领域开放改革三年行动计划》); and (8) the Three Year Action Plans on Opening and Reforming the Business Service, Transportation, Construction Service and Other Sectors (《商业服务、交通运输、建筑服务等领域开放改革三年行动计划》),all jointly issued by 10 competent local authorities.

[2] 国务院院关于全面推进北京市服务业扩大开放综合试点工作方案的批复, issued by the State Council on 22 February 2019.

[3] See the qualified “service provider” regime of the agreements commonly known as “CEPA”, e.g., the Mainland and Hong Kong Closer Economic Partnership Arrangement Agreement on Trade in Services (《〈内地与香港关于建立更紧密经贸关系的安排〉服务贸易协议》), effective as of 1 June 2016; the Mainland and Macau Closer Economic Partnership Arrangement Agreement on Trade in Services (《〈内地与澳门关于建立更紧密经贸关系的安排〉服务贸易协议》),effective as of 1 June 2016.

[4] Such storage and forwarding services and domestic multi-party communications services were only recently fully open to foreign investment under the Special Administrative Measures on Foreign Investment Access (Negative List) (2019 Edition) (《外商投资准入特别管理措施(负面清单)(2019年版)》) (“Negative List”), jointly issued by the NDRC and the MOFCOM on 30 June 2019 and effective as of 30 July 2019.

[5] The operation of performance brokerage institutions has also been fully opened to foreign investment under most recently issued Negative List.

[6] For more details, please see our previous newsletters: China Releases New Negative ListsandChina Passes Unified Foreign Investment Law.